SANTA CLARA, CA — Rents in the U.S. fell for the tenth straight month in May, though the decline is slowing, according to the Realtor.com Rental Report. This trend poses potential challenges for reducing overall inflation and complicates the Federal Reserve’s policy decisions. The report also highlights the urgent need for more housing construction in markets with limited rental supply.
The median asking rent for 0-2 bedroom units dropped by 0.7% from May of last year to $1,732. This is just $24 below its peak in August 2022. Over the past five years, median rents have risen by 21.5%.
“Slowing rent growth preceded slower shelter inflation,” said Danielle Hale, Chief Economist at Realtor.com. “Falling market rents over the last ten months have further decelerated shelter prices. However, the declining rate of market rents suggests smaller future drops in the Consumer Price Index (CPI) for shelter, which may hinder efforts to control overall inflation.”
Shelter costs, which include rent and owners’ equivalent rent, have been major drivers of consumer cost increases. The CPI for shelter rose by 5.5% year-over-year in April, down from a peak of 8.2% in March 2023. This index typically lags behind market-based rent measures, but the gap has recently widened, making it harder to reduce overall inflation. Increased housing construction could help lower costs for renters by addressing short supply.
Rents fell significantly in the South and West, with Austin seeing a 9.3% drop, Nashville 8.3%, and San Antonio 8.2%. The West also saw declines, with Phoenix down 4.5%, San Francisco 4.3%, and Las Vegas 4.1%. Conversely, in the Midwest and Northeast, strong labor markets increased rental demand while new housing supply lagged. Indianapolis saw rents rise by 4.4%, Milwaukee 4.3%, and Minneapolis 2.9%. In the Northeast, Pittsburgh and New York experienced rent increases of 2.4% and 2.2%, respectively.
All unit sizes saw rent declines in May. Studio rents fell by 1.9% to $1,449, down 2.8% from their peak in October 2022 but still 17.3% higher than five years ago. One-bedroom rents dropped by 1.1% to $1,612, marking the twelfth consecutive annual decline, yet they remain 20.3% higher than five years ago. Two-bedroom rents fell by 0.7% to $1,925, also continuing a twelve-month downward trend but rising by 23.3% over the past five years.
The slowing pace of rent declines signals potential difficulties in curbing overall inflation. As rents make up a significant portion of household expenses, the shift in trends could impact consumer spending and economic policy decisions moving forward.
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